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Business Case: NEW YORK TIMES
Business Case: NEW YORK TIMES
identify NYT’s core competences and capabilities and discuss their effectiveness in supporting the organisation’s success to the date of the case (2009)
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1. must follow the assignment guideline. Harvard style. |
Troubled Times for the “Good Gray Lady” The early months of 2009 were a difficult period for the New York Times Company (NYT), publisher of the New York Times and Boston Globe and the owner of a number of regional titles as well as several nonprint media businesses. In common with other U.S. newspaper publishers, the NYT was suffering from the cyclical problem of cutbacks in advertising budgets and the long-term problem of declining readership as newspapers increasingly lost ground to online sources of information. During January and February, the company was subject to repeated speculation concerning its ability to meet its financial obligations—in particular, the refinancing of a $400 million line of credit due to expire in May. In January the Case 14 New York Times E1C14.qxd 24/12/09 12:28 Page 698 CASE 14 NEW YORK TIMES 699 company bought itself breathing space with a $250 million loan at 14% interest from the Mexican billionaire, Carlos Slim. In February it eliminated its dividend for the year. The annual results for 2008 showed revenues contracting at a faster pace than the company could cut costs. Once impairment charges were taken into account (mainly relating to write-downs of goodwill and the masthead values), NYT made a net loss of almost $58 million (see Table 14.1). The NYT’s share price reflected the general pessimism concerning the company’s prospects. In September 2008, its shares had been trading at above $14. On February 20, 2009, they closed at $3.44. At the shareholder’s annual meeting on April 29, 2009, Board Chairman Arthur Sulzberger Jr. addressed the company’s problems and the board’s strategy for dealing with them: In our remarks this morning, both Janet Robinson, president and CEO of The New York Times Company, and I will talk about the actions we and our colleagues are taking to steer our organization through the current financial downturn, advertising decline and technological fragmentation—which, collectively, are having a brutal effect on all in the media business. As you will hear and see this morning, The New York Times Company is no exception. As the Times Company’s board of directors and senior management TABLE 14.1 New York Times Company, Inc.: selected financial data ($000s, except where indicated) 2008 2007 2006 2005 2004 Revenues 2948856 3195077 3289903 3231128 3159412 Operating costs 2791613 2928070 2996081 2911578 2696799 Impairment of assets 197879 11000 814433 – – Gain on sale of assets – (28578) – 122946 – Operating (loss)/profit (40636) 227429 (520611) 442496 462613 Interest expense, net 47790 39842 50651 49168 41760 Income from continuing operations (66139) 108939 (568171) 243313 264985 Discontinued operations – 8300 99765 24728 15687 22646 Broadcast Media Group Net income (57839) 208704 (543443) 253473 287631 Property, plant and equipment 1353619 1468013 1375365 1401368 1308903 Total assets 3401680 3473092 3855928 4564078 3994555 Total debt 1059375 1034979 1445928 1396380 1058847 Stockholders’ equity 503963 978200 819842 1450826 1354361 Return on average stockholders’ 8 23 48 18 21 equity (%) Total debt to total 68 51 64 49 44 capitalization (%) Operating profit/revenues (%) 1 7 16 14 15 Current assets to current liabilities 0.60 0.68 0.91 0.95 0.84 Employees (full-time equivalent) 9346 10231 11585 11965 12300 Source: New York Times Company, Inc., 10-K Report, 2008. E1C14.qxd 24/12/09 12:28 Page 699 700 CASE 14 NEW YORK TIMES continue to lead our enterprise through this uncertain era, we are guided by four underlying premises: ● First, quality will remain the distinguishing feature of all that we have to offer; ● Second, business will continue to be difficult, but we are absolutely committed to creating greater shareholder value; ● Third, there is no one single solution that will return us to revenue growth; ● And fourth, we will aggressively go where our new thinking and analysis take us. Let me expand on these last two thoughts: we recognize that the answers for national and international media outlets such as the New York Times and the International Herald Tribune will be different than those for our local papers such as the Sarasota Herald-Tribune and the Wilmington Star-News. And, of course, About.com faces yet a different set of issues and solutions. Of all our properties, the Boston Globe has been most dramatically affected by the secular and cyclical forces that are roiling the entire media industry. We have responded by consolidating printing facilities, raising circulation prices and reducing headcount. But more needs to be done to align the Globe’s costs and revenues . . . We know that there are considerable challenges before us, but past experience teaches us that the outcome will be determined by our ability to adhere to the formula that has successfully driven this Company for so long. That formula can be summed up in this thought: quality journalism attracts a quality audience which, in turn, attracts quality advertisers. It is this idea, expressed various ways over numerous decades, which has seen The New York Times Company through previous grim economic periods and has enabled The Times to emerge as the world’s most powerful journalistic voice. Our quality journalism is the fundamental asset our shareholders have. And just three days ago that quality was again recognized as five Pulitzer Prizes were awarded to the men and women of The New York Times . . . Now let me turn to a basic question that I am repeatedly asked: Can quality journalism exist in this new economic environment? Let me rephrase that question with the one we ask ourselves: How can we enhance our digital revenue sufficiently so that we have the financial foundation necessary to support our news gathering operations, be they at The New York Times, the Boston Globe or any of our regional news outlets? At The New York Times Company, we are focusing on three key levers to achieve this essential goal: attracting more users, deepening their engagement and then earning revenue from their usage. To do all this effectively has and will continue to require our making bets on how this new medium will evolve and then making investments in that vision. This is certainly not an easy task, but our insights into human behavior and digital evolution are helping to guide us. Throughout 2008 and the first months of 2009, we have continued to create a new form of web journalism that is both informative and compelling. Our goal is to respond to our audiences’ demand for interactivity, community and multimedia, as well as news and information on an increasingly wide range of topics. We are aggressively responding to our readers’ desire to do something with our content. Our readers want to share it, or blog it, or comment on it. They want to use our journalism as raw material for what they make . . . E1C14.qxd 24/12/09 12:28 Page 700 CASE 14 NEW YORK TIMES 701 Our strategy is rooted in the fundamental premise that we must be OF the internet, not ON it, requiring all of us to move from merely publishing our content on the web to becoming full web publishers. Presently, we are doing this with an increasing battery of online initiatives, but we are not yet bringing in the revenue we will need in the long-term. We are currently examining a vast array of tactics and options that will enable us to adapt financially to the new realities of our business. As we chart our course toward a sustainable digital future, we have come to recognize with increasing clarity that online success will require substantial re-conceptualization, thoughtful execution, and a great willingness to take full advantage of the web, an amazing laboratory for entrepreneurs, technologists and, of course, journalists. While we have talked a lot about our Company’s online efforts, I am sure that some shareholders wonder whether all this web activity portends the end of print. Of course not! . . . [A]pproximately 88% of our Company’s revenues come from print. There are currently more than 830000 readers who have subscribed to The New York Times for two years or more, what we call loyalists. This is up from 650000 in the year 2000. Across the Company, circulation revenues made up 38% of our total in the first quarter, significantly higher than others in the industry and a sizeable and stable base. As other newspapers cut back on international and national coverage or, in some sad cases, cease operations, we believe there will be opportunities for The Times in print to fill this void, resulting in increased revenue from circulation, news services and other products.1 Sulzberger closed his presentation by reminding shareholders of the consistency and steadfastness of the NYT’s long-term strategy: The path to our digital future is not a new one. Let me repeat something I said to my colleagues a decade ago, at my 1999 annual speech to the staff: “At the heart of this presentation are plans for ensuring that, a decade from now and a century from now, The New York Times will still be the leader in its field of quality journalism, regardless of how it is distributed. These plans entail our moving from a strategy focused on the specific products we produce to one built around our audience—a quality audience strategy. Our goal is to know our audience better than anyone else; to meet their informational and transactional needs—by ourselves where we can; in partnership with others when necessary; and to serve them in print and digitally, continuously and on-demand.” Ten years later, we have done this and much more with the tools and platforms that are now at our disposal. We understand this audience and they come to us in what once would have been unimaginable numbers. Now, because of secular and cyclical changes that are transforming our marketplace, we are in the process of fundamentally re-conceptualizing our relationship with that audience. What does this mean? Specifically we are in the process of rethinking the value of what we are offering. As you will hear in the months ahead, we will be: ● Engaging in a thoughtful analysis of brand loyalty and circulation revenue. ● Exploring a new online financial strategy. E1C14.qxd 24/12/09 12:28 Page 701 702 CASE 14 NEW YORK TIMES ● Leveraging the added value we bring to advertisers in terms of brand, technology and thought leadership. ● And thinking about how mobiles, e-readers and social networking can be brought more deeply into the equation. Fundamentally, we are taking an increasingly deeper look at the role that quality journalism plays in the twenty-first century. We will be determining how best to take what we know, and create a more effective business model. Of course, this search for long-term financial stability is taking place throughout the media industry and each enterprise will have its own answers. At The New York Times Company, our new relationship with our audience will be guided by our cornerstone belief that world class news, opinion, photography, videography and blogging will grow in value as the interconnection between what happens in the world and the lives of our readers becomes more personal, immediate and direct. This is why we unequivocally believe in our future.2 Sulzberger’s faith in the future of the NYT was not widely shared. Skeptics pointed to the decline in newspaper circulation, the sharp decline in newspaper readership among the young, the shift of advertising from print media to online and the failure of the major newspapers to establish a viable business model for their online publishing. There were also concerns regarding the financial acumen of the familycontrolled board of directors. In 2006, NYT’s board rejected a bid led by former General Electric chairman, Jack Welch, to buy the Boston Globe for $600 million. The Globe had subsequently become the NYT’s biggest cash drain. In 2007, NYT moved into a new $500 million headquarters in midtown Manhattan. Between 1997 and 2004 the company spent $3 billion on stock repurchases at an average price of $37. Some shareholders viewed Chairman Sulzberger, the great-grandson of the newspaper’s founder, as part of the problem rather than its solution. However, with NYT’s dual-class share structure, the Sulzberger family had been able to dominate the board ever since the NYT had gone public in 1969. Media tycoon, Rupert Murdoch, has referred to the New York Times as “his favorite train wreck” and puts the blame firmly on the shoulders of Arnold Sulzberger, who he blamed for loosening The Times’ links with New York in his urge to make The Times a national newspaper.3 The New York Times Company in 2009 The Business The NYT comprises two business segments: ● The News Media Group, which consists of: ■ The New York Times Media Group, which includes The Times, NYTimes.com, the International Herald Tribune and a New York City radio station, WQXR-FM; ■ The New England Media Group, which includes the Boston Globe (the Globe), Boston.com, the Worcester Telegram and Gazette and related web sites; c32.qxd 6/8/10 11:42 AM Page 702 CASE 14 NEW YORK TIMES 703 ■ The Regional Media Group, which includes 15 daily newspapers in Alabama, California, Florida, Louisiana and the Carolinas, plus other print publications. ● The About Group, which consists of the web sites of About.com, ConsumerSearch.com, UCompareHealthCare.com and Caloriecount.about.com. In addition NYT owns equity interests in a Canadian newsprint company, a paper maker in Maine and Metro Boston (a free daily newspaper), 18% of the Boston Red Sox and Fenway Park stadium, 80% of New England Sports Network (the regional cable sports network), and 50% of Roush Fenway Racing, a leading NASCAR team. The News Media Group comprised by far the largest part of the company’s operations. However, shrinking advertising revenues, declining circulation and increasing competition from free newspapers and nonprint sources of news had placed major pressures on margins. Table 14.2 shows results for NYT’s two business segments. Table 14.3 shows circulation for NYT’s three major newspaper titles, while Table 14.4 shows traffic to NYT’s web sites. Within the News Media Group, The Times was the company’s jewel. It is the only general daily newspaper to be distributed in all 50 states of the U.S. In terms of journalistic reputation it is unsurpassed. By 2009, its tally of Pulitzer prizes was 101— more than double that of any other newspaper. Its columnists include Nicholas Krista, Thomas Friedman and Nobel Prize-winning economist, Paul Krugman. The company has attributed its ability to raise the cover price of The Times (up from $1 to $2 between July 2007 and May 2009) to the appeal of its quality journalism. Web revenues were almost wholly generated by advertising while newspaper revenues were primarily dependent upon advertising. Hence, as Table 14.5 shows, the great majority of NYT revenues were provided by advertisers. TABLE 14.2 New York Times Company: segment results ($000s) 2008 2007 2006 Revenues News Media Group 2833561 3092394 3209704 About Group 115295 102683 80199 Total 2948856 3195077 3289903 Operating profit News Media Group (30392) 248567 (497276) About Group 39390 34703 30819 Corporate (49634) (55841) (54154) Total (40636) 227429 (520611) Net income/(loss) from joint ventures 17062 (2618) 19340 Interest expense, net 47790 39842 50651 (Loss)/income from continuing (71364) 184969 (551922) operations before income taxes and minority interest Source: New York Times Company, Inc. 10-K Report, 2008. c32.qxd 6/8/10 11:44 AM Page 703 704 CASE 14 NEW YORK TIMES TABLE 14.3 Average daily circulation of New York Times Company newspapers (000s of copies) 2008 2007 New York Times (Monday–Friday) 1033.8 1066.6 New York Times (Sunday) 1451.3 1529.7 International Herald Tribune 240.3 241.6 Boston Globe (Monday–Friday) 323.9 364.6 Boston Globe (Sunday) 500.0 544.1 Source: New York Times Company, Inc., 10-K Report, 2008. Cost Cutting The principal response by NYT management to shrinking revenues had been to cut costs. In her presentation to shareholders at the 2009 Annual General Meeting, CEO Janet Robinson identified five areas of cost savings: ● Consolidation of operations. The Times had consolidated two of its New York printing plants into a single facility, saving $30 million annually. The Globe would do the same with its two printing plants, saving about $18 million annually. ● Closure of businesses that did not meet their financial targets. In early 2009, NYT closed City & Suburban, its retail and news-stand distribution business in the New York area. This would improve operating profit by an estimated $27 million annually. TABLE 14.4 New York Times Company principal web sites, 2008 Average monthly U.S. visits 2008 (millions) Content Revenue source NYTimes.com 19.5 New York Times web sites Advertising IHT.com 6.3* International Herald Tribune web site Advertising Boston.com 5.2 Boston Globe web site Advertising About.com 39.0 Information on over 70000 topics Advertising prepared by 770 advisers ConsumerSearch.com n.a. Expert and user-generated consumer Advertising product reviews UCompareHealthCare.com n.a. Information on the quality of Advertising certain healthcare services Caloriecount.about.com n.a. Weight management tools, social Advertising support and nutritional information *Worldwide visitors Source: New York Times Company, Inc., 10-K Report, 2008. E1C14.qxd 24/12/09 12:28 Page 704 CASE 14 NEW YORK TIMES 705 ● Streamlining the organization—principally through outsourcing functions such as advertising service, circulation telemarketing, customer service and financial back-office functions. At some of the smaller newspapers, printing would be outsourced. ● Reducing the resources devoted to marginal areas of circulation. ● Reducing newsprint consumption and production costs by eliminating some newspaper sections (e.g. magazines and TV guides) and reducing the page size of The Times. 4 Asset Sales The New York Times Company has divested a number of non-core businesses. In 2007 it sold its nine local television stations; in 2008 it sold Alabama-based Times Daily. In 2009, it was negotiating to sell its 18% stake in New England Sports Ventures (owner of the Boston Red Sox and Fenway Park) and its 80% holding in New England Sports Network (a cable TV network). The Quest for a New Business Model Arnold Sulzberger’s notion of the NYT providing “quality journalism, regardless of how it is distributed” was appealing to many who perceived that NYT’s core competence was journalism, yet its primary distribution medium—printed newspapers—was in long-term decline. Sulzberger’s vision also lacked a well-articulated business model. TABLE 14.5 New York Times Company: principal revenue and cost components ($000s) 2008 2007 2006 Total revenues 2948856 3195077 3289903 of which: —Advertising 1779699 2047468 2153936 —Circulation 910154 889882 889722 —Other 259003 257727 246245 Total production costs 1315120 1341096 1435456 of which: —Raw materials 250843 259977 330833 —Wages and benefits 622692 646824 665304 —Other 441585 434295 439319 Selling, general and 1332084 1397413 1398294 administrative costs Depreciation and amortization 144409 189561 162331 Total operating costs 2791613 2928070 2996081 Source: New York Times Company, Inc., 10-K Report, 2008. E1C14.qxd 24/12/09 12:28 Page 705 706 CASE 14 NEW YORK TIMES Amidst the carnage of the U.S. newspaper industry, profitable titles tend to be those where costs have been slashed by radical outsourcing and those that have been able to establish strong differentiation through strongly focusing upon local needs. Where all newspapers have experienced difficulty is in establishing a viable business model for their online editions and establishing a synergistic relationship between their web and print editions. In the case of NYTimes.com, fees were initially collected from international users then, in 1997, the online edition became free in an effort to increase the online audience. In 2005, NYTimes.com moved to a mixed model—TimesSelect charged a fee for premium content and access to The Times’ online archives. By 2007, the desire to build advertising revenues resulted in NYTimes.com providing free access. By 2009, the company was once again evaluating the best approach to charging for content. Creating a viable online business model for a newspaper represents a challenge that has yet to be met. Rick Wartzman, Director of the Drucker Institute, has proposed an online-only solution: “The web needs to be embraced much more fully than most papers have done. This means no more tentative, halfway initiatives. Dead-tree editions must immediately yield to all-internet operations. The presses need to stop forever, with the delivery trucks shunted off to the scrapyard.” As an example, he proposed that if the Los Angeles Times went online only it could operate with a staff of 275 and earn a net margin of 10%.5 The Huffington Post has been viewed as a model for an online newspaper. The central debate over online newspapers has been between advocates of “charging-for-content” and those that see the advertising-only approach as the only viable business model. Eric Schmidt, CEO of Google, comes down firmly on the side of free content and revenues for advertising. Only where content is unique, he argues, will users be willing to pay. For the great majority of news, there is no alternative to providing it free because it is available from so many online sources. The opportunity for online newspapers was to offer targeted advertising—that’s where he sees Google as being an essential partner for the newspaper companies. In terms of the design of online newspapers, he suggested that critical features for an online newspaper were, first, it should remember which stories each reader had read so that content could be customized and, second, it should allow the reader to go deeper into topics in which he/she was interested.6 However, the discussion of business models for online newspaper content raised the question of what the traditional business model was for print newspapers? The history of the newspaper industry in the U.S. and in other countries of the world, suggested that profit typically took a second place behind political influence and ego projection among most newspaper proprietors. The attraction of newspaper ownership to already rich individuals could mean that a newspaper could be financially viable even if its costs exceeded its revenues. The attraction of The Times to the rich and famous was indicated by the presence of a number of potential suitors—in addition to Rupert Murdoch and Carlos Slim, Hollywood and record mogul David Geffen had expressed interest in taking a stake in it. A key issue was whether the financial problems of the newspapers would stretch the willingness to pay of potential “rich daddies.” The Financial Times warned that: Even wealthy patrons have reason to be wary, however. Sam Zell, the highest profile recent new entrant into the newspaper business, saw his $8.2bn purchase of the Tribune Company end last month in the bankruptcy courts. Having long E1C14.qxd 24/12/09 12:28 Page 706 CASE 14 NEW YORK TIMES 707 been seen as useful assets for burnishing their proprietors’ reputations, newspapers now pose as much risk of tarnishing their owners’ names.7 A major reason why the financial plight of the newspaper industry has attracted so much attention and concern is that newspapers have been regarded as a valuable public service—the “fourth estate” that can shine the light of public exposure on the wrongdoings of politicians and powerful individuals. If a free press is a central component of a democratic state, then an alternative business model might be that of a charity. Penelope Muse Abernathy of the University of North Carolina, has proposed four options for newspaper funding: establishing an endowment that funds a paper’s news department; charitable support for some aspects of the paper’s coverage, such as foreign or cultural coverage; purchase of the paper by a university or other educational institution; and sale to an angel investor who would run the paper as a “low-profit limited liability corporation.”8 Non-profit organizations are also entering the field of journalism. ProPublica, led by Paul Steiger, a former senior editor at the Wall Street Journal, funds investigative journalism from charitable endowments. It then makes its stories available to The Times and other newspapers. The Times also collaborates with Spot.Us, a web site on which journalists can post story ideas they wish to pursue and what it will cost them to do it, raising the money from the public $20 at a time.9 Notes 1 The New York Times Company 2009 Annual Meeting of Stockholders, April 23, 2009. 2 The New York Times Company 2009 Annual Meeting of Stockholders, April 23, 2009. 3 “Feeling the Pinch,” The Economist, December 4, 2008. “All the News that’s Free to Print,” The Economist, July 21, 2009. 4 The New York Times Company 2009 Annual Meeting of Stockholders, April 23, 2009. 5 “Out with the Dead Wood for Newspapers,” Business Week, March 10, 2009. 6 “View from the Top: Eric Schmidt of Google,” Financial Times, May 21, 2009. 7 “Playthings for Rich Men could be Unsafe Toys,” Financial Times, January 21, 2009. 8 Penelope Muse Abernathy, “A Nonprofit Model for The New York Times?” Duke Conference on Nonprofit Media, May 4–5, 2009. 9 “All the News that’s Free to Print,” Economist, July 21, 2009. E1C14.qxd 24/12/09 12:28 Page 707
STRM043
ASSIGNMENT II – INDIVIDUAL CASE ANALYSIS
Business Case: NEW YORK TIMES (NYT)
Please follow the guide lines:
Required
- Using appropriate academic models and concepts identify NYT’s core competences and capabilities and discuss their effectiveness in supporting the organisation’s success to the date of the case (2009) ( about 750 words)
- Either
- Discuss the strategic options available to NYT over the five years from 2009, with particular reference to the external environment as it is described in the case, and compare this with your earlier analysis for Q1. You may wish to undertake independent research to bring the case up to date, in which case please comment and critique what the company actually did using suitable strategy tools and analyses. (about 1000 words)
Or
- Compare and contrast the NYT digital strategy with that of the Financial Times (FT) digital strategy (as explained in the video by the FT’s James Mann, featured in the module’s NILE site in Session 11 with a link) commenting on which you think is the most effective and why.(1000 words)
- Applying suitable academic models, including but not limited to the Balanced Scorecard, explain how the NYT strategy could be evaluated and monitored, both before implementing (when choosing between different strategies) and after the strategy is launched. ( about 750 words)
- In order to answer these questions you must carry out further research on NYT, however you must only use material drawn from credible sources such as: academic articles and texts; quality newspaper and business periodicals, e.g., the FT, The Economist and the official NYT corporate website. You should not use unreliable sources such as non-reviewed websites, e.g., Wikipedia.
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